MUSKEGON HEIGHTS, Mich. (WOOD) — The school board of Muskegon Heights Public Academy System and the Atlanta-based, for-profit company running the district have mutually agreed upon terminating the contract with the company.

On Saturday morning, the two sides said they came together and decided to end their contract with Mosaica Education Inc. That company took over Muskegon Heights Public Schools because it was millions of dollars in debt.

The board voted to let the contract expire at the end of June. The original 5-year contract will expire 3 years earlier than originally planned.

The board says they will be hiring a new company to take over the school district.

Muskegon Heights Public Academy System is a charter school district run by Atlanta-based, for-profit company Mosaica Education Inc. That company took over Muskegon Heights Public Schools because it was millions of dollars in debt.

Mosaica Education Inc. received more than $1.5 million in management fees and licensing costs for its curriculum in the last school year. A budget posted on the district’s website anticipated the fees would be more than $1 million this year for the same management and licensing fees.

“The heights have nothing to offer these children. That’s why they are all going to Muskegon, Mona Shores, Orchard view, where have you,” said Carolyn Neal.

Neal taught at the district for 38 years. She retired just before Mosaica took over. She also has a granddaughter enrolled in the district.

The number of students is particularly important for school funding, as a large portion of money is tied to per pupil enrollment. The state aid note that the district is borrowing against is based on the district’s current enrollment numbers. If those numbers go down, the district will still have to pay the state back for the amount borrowed.

This is, at least in part, what happened to the original Muskegon Heights Public School District. That district borrowed against future state aid notes, and declining student enrollment pushed the district further into debt.

Muskegon Area Intermediate School District Superintendent Dave Sipka said that while there are several reasons behind the cash-flow issue, a major one was that Mosaica’s business model is based on a district with about 1,400 students and the Muskegon Heights Public Academy System currently has around 900.

“As a business, the trouble is, they’ve just lost so many students over the years,” Sipka said. “From last year to this year, as a for-profit business, their business plan isn’t working right now.”

Sipka also pointed to other costs that were higher than initially budgeted for in the charter. He said the company had to pay significant costs — more than $500,000 — to get schools up to code in 2012. He also said the costs of special education were higher than the company first budgeted.

“It’s never one issue, it’s a series of issues,” Sipka said.

“When you have the wrong people in charge they misuse money,” Neal said.

To pay out staff salaries, the district had to borrow 93% of its April state aid payment. Because it borrowed so much of the payment early, the district would have received only about $32,000 from the state on Sunday, having already received the rest of the $455,000 payment.

The district ended its first school year more than $500,000 in debt. Its management company Mosaica Education said Monday that figure has only increased this school year.

CEO Michael Connelly said that the district owes Mosaica about $2 million. He said the district hadn’t paid the company its contractually agreed upon management fee this year. He also stated that the company had fronted the district money to cover costs for building improvements last year and payroll earlier this year.

“We no longer have the capacity, the financial ability, to lend [the district] any more money,” Connelly said over the phone Monday.

“If I had money, millions of dollars. I would invest it in Muskegon Heights Public Schools. And we would open our district, we would take it back. But that is all a wish,” Neal said.

Considering the scope of the money problems, 24 Hour News 8 asked if the district would be open for business during the 2014-2015 school year.

“The school will be here tomorrow, next year, the year after that, the year after that,” Muskegon Heights Board of Education President Arthur Scott said. “That’s a promise.”

Mosaica Education Inc. released a statement Saturday afternoon that says:

After lengthy discussions and thoughtful consideration, the Muskegon Heights Public School Academy Board of Education and Mosaica Education, Inc. have agreed to end their affiliation. The MHPSA board today unanimously supported a resolution to conclude its relationship with Mosaica as the system’s education service provider at the end of the current school year. Mosaica’s board had previously approved a similar resolution.

Higher than expected costs related to building renovations and special education programs and a lower than expected student count for the current school year has placed stress on the System’s tenuous finances. “This was a difficult decision for us and our board,” said Mosaica Chief Executive Officer Michael Connelly. “We are very proud of the academic turnaround we were able to achieve under the leadership of Alena Zachery-Ross, our Regional Vice President and the Superintendent for the System.”

“It was also a difficult but necessary decision for the board,” said MHPSA Board of Education chair Arthur Scott. “We appreciate all of the hard work from Mosaica, System teachers and staff, and from our student families. “Going forward, we will continue to take every step necessary to ensure that we offer a quality education to each and every student in the Muskegon Heights Public School Academy System.”

When MHPSA first began operations, students tested between one and three grade levels behind where they should have been. Some students were as far as five years behind. Recent data has demonstrated educational improvement, with some grade levels showing dramatic increases in academic achievement. Recent MEAP data has been posted on the system’s website.

Emergency Manager Gregory Weatherspoon thanked Mosaica and the MHPSA board for their accomplishments: “We continue to see improvement on the education side of things, and that is a terrific story. While there have been financial challenges, we continue to work with the State to address some structural issues and have laid the groundwork for a stronger fiscal future. We will begin the process of identifying a new education service provider as soon as possible, and will be ready to open our buildings for the 2014-2015 school year.”

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